KHVPF Insight

Arbitration Developments – Three Unanimous Decisions

Arbitration Developments – Three Unanimous Decisions

The last few months have seen three unanimous rulings on arbitration by the United States Supreme Court.

Interstate Commerce Exception. Section 1 of the Federal Arbitration Act, which generally gives effect to private arbitration agreements, contains an exemption for “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The Supreme Court has long held that the residual category (“any other class of workers”) should be read to apply to other types of transportation workers besides “seamen” and “railroad employees.” But how to determine whether an employee is a “transportation worker”? The Second Circuit held that truck drivers for a bakery were not “transportation workers” because their employer was in the bakery business, not the transportation business. The Supreme Court unanimously reversed in Bissonnette v. LePage Bakeries Park St., LLC. It held that the relevant inquiry is not whether the employer is in the transportation industry (for example, as FedEx would be), but whether the specific workers in question engaged in the movement of goods. This ruling means that any employer in any industry might not be able to rely on arbitration agreements, with respect to those employees whose duties include transportation.

Arbitration Procedure. A few weeks later, the Supreme Court again addressed arbitration. At issue in Smith v. Spizzirri was whether a district court that grants a motion to compel arbitration may dismiss the pending federal lawsuit, or whether it must stay the lawsuit to await the conclusion of arbitration. The Supreme Court unanimously held that the Federal Arbitration Act requires a stay of the federal action, not dismissal. The Supreme Court reasoned that the FAA contemplates a supervisory role by the district court (including enforcing arbitrators’ subpoenas and arbitration awards) and thus arbitration actions must remain pending on the docket rather than dismissed.

Arbitration Contract Disputes. One week after Smith, the Supreme Court addressed yet another arbitration issue. In Coinbase v. Suski, a cryptocurrency exchange platform had an arbitration agreement in its user agreement, but a separate promotional sweepstakes agreement contained a forum selection clause requiring lawsuits to be filed in California court. A plaintiff filed a class action related to the sweepstakes in federal court based on the sweepstakes contract language. The cryptocurrency exchange sought to compel arbitration based on the user agreement. At issue: who decides which contract controls—the arbitrator or a court? The Supreme Court, again unanimously, held that arbitration is a matter of contract and a party cannot be forced into arbitration unless it agreed to do so. Thus, if there is a dispute between which contract controls (one with an arbitration clause, one without), a court and not the arbitrator must decide whether the suit must go to arbitration.

While the underlying legal ruling in Coinbase may be straightforward, it does remind employers to make sure that—if they are going to insist on arbitration clauses— they should be consistent in doing so across various contracts. Given that arbitration is intended to resolve cases more speedily and inexpensively, having to litigate over preliminary questions of arbitrability is counterproductive and a waste of time and resources.